Global markets fell on Monday amid concerns of a slowdown in global economy and recession in the US. Japan’s Nikkei hit a five-week low after diving 3.1 percent for its largest one-day percentage fall since late December. South Korea’s Kospi index declined 1.7 percent while Australian shares faltered 1.1 percent. Chinese shares were also in the red with the blue-chip CSI 300 index down 1.4 percent. Japan’s Nikkei (N225) closed down 3% on Monday, while Hong Kong’s Hang Seng (HSI) shed 2%.
Here’s a look at why the US and global economy could be staring at a recession.
Concerns about the health of the world economy heightened last week after cautious remarks by the US Federal Reserve sent 10-year treasury yields to the lowest since early 2018.
US Federal Reserve said that it would not raise interest rates this year. The comments were seen as central bank’s affirmation of pessimistic outlook for the world’s largest economy. Last year, the Fed adopted hawkish stance and raised interest rates four times.
Meanwhile, President Donald Trump in a tweet on March 18 hailed the growth of US economy that beat market expectations for his first two years in office.
The Central bank’s stance led the US 10-year treasury yields fall below three-month rates for the first time since 2007 on Friday.
Historically, an inverted yield curve – where long-term rates fall below short-term – has signalled an upcoming recession.
An inverted curve has been a reliable predictor of a coming US recession for decades.
On Friday, the Dow Jones sank 1.8%, the S&P 500 was off 1.9 percent and the Nasdaq dropped 2.5%.
“The bond market price action is an enormous blaring siren to anyone trying to be optimistic on stocks,” JPMorgan analysts said in a note to clients.
“Growth, and bonds/yield curves, will be the only thing stocks should be focused on going forward and it’s very hard to envision any type of rally until economic confidence stabilizes and bonds reverse,” it added.
Compounding fears of a more widespread global downturn, manufacturing output data from Germany showed a contraction for the third straight month. In the United States, preliminary measures of manufacturing and services activity for March showed both sectors grew at a slower pace than in February.
According to financial data firm Markit, the US manufacturing sector in March logged its weakest growth since June 2017, driven by uncertainty caused by international trade conflicts such as the ongoing US-China trade dispute.
Euro zone factory output unexpectedly slammed into reverse last month as activity in Europe’s manufacturing powerhouse Germany declined again amid trade tensions and struggles in the auto sector, surveys showed.